Key Challenges Facing the Eastern Mediterranean: The Future of Regional Energy Development.

• Author: Karbuz, Sohbet
• Position: ARTICLE

Introduction

The exploration and exploitation of hydrocarbons resources in the Eastern Mediterranean have played an important role in regional dynamics for several reasons. (1) First, the Eastern Mediterranean holds substantial natural gas potential. The total volume of discovered gas reserves in the region is similar to that of Norway. Around half of that volume, which is equivalent to Azerbaijan's current gas reserves, was discovered in the past decade. When the assessments for undiscovered resources are also considered, the regions total gas potential is equivalent to that of the North Sea, making the Eastern Mediterranean region an exciting exploration frontier.

Second, the exploitation and utilization of the regions gas potential have brought various benefits and challenges with it. In addition to contributing to the economy of the region, the discovered reserves have changed the entire energy picture in Egypt and Israel. Now, these gas producers face the risk of oversupply and competitive prices within the region. Third, having supplied their immediate neighbors, they are in need of reaching distant but lucrative markets; the lack of sufficient gas export infrastructure in place is a major obstacle. All of the options on the table face several commercial, security, legal and political challenges.

Resolving the longstanding disputes in the region, particularly those related to maritime boundaries, remains the most difficult conundrum. Without a viable export route to distant markets, the future of exploration, production, and field development activities in the region look bleak. Unfortunately, instead of paving the way for collaboration and cooperation to help improve prosperity, natural gas has further complicated the already complex dynamics of the region and become a tool for shaping new alignments and alliances. All of these issues will be discussed throughout this article through a critical lens and some recommendations for a possible way forward will be offered.

Brief Overview of Natural Gas Developments in the Eastern Mediterranean

More than 5,000 billion cubic meters (bcm) of natural gas has been discovered in the region since the first gas discovery in Egypt's Abu Madi gas field in 1967. (2) This is more than the total amount of gas discovered in Norway. (3) Around half of that volume was discovered in the past decade. (4) Some of the discoveries in the Eastern Mediterranean, namely, the Tamar and Leviathan fields in 2009 and 2010 in Israel, Aphrodite in 2011 in Cyprus, and Zohr in 2015 in Egypt were among the world's largest deep-water gas discoveries. (5) Of these, the Zohr field is the largest gas discovery ever made in the Mediterranean Sea. (6) Consequently, the Eastern Mediterranean has become one of the most exciting new frontiers of natural gas exploration worldwide. However, this is not the only reason why the region has sparked the interest of major international energy players.

The Eastern Mediterranean region is estimated to have substantial yet-to-be-discovered hydrocarbon resources. Two United States Geological Survey assessments, (7) as well as potential estimates by Cypriot, Lebanese, and Israeli officials, have put the region under the spotlight of international energy companies. (8) These estimates indicate that the region's undiscovered potential is twice as much as the total gas discoveries made there so far. When the volume of discovered gas and undiscovered gas potential are combined, the resulting total places in the Eastern Mediterranean region are on par with the whose holdings are divided among Norway, the UK, the Netherlands, and Denmark.

The substantial gas potential of the Eastern Mediterranean has yet to be adequately developed. A large part of the region still remains under- or unexplored, even in Egypt, and the speed of exploration and success have been uneven among the countries involved. Some countries have been successful in attracting foreign companies, others not. In some cases, progress has been interrupted or delayed because of domestic conditions, often related to political, regulatory, and legal issues. A brief account of exploration activities by country is provided below.

Egypt

Egypt has launched numerous international bidding rounds for hydrocarbon exploration and production and has signed dozens of agreements with international companies. (9) The demarcation of its maritime borders with Saudi Arabia allowed Egypt to launch its first-ever bid round in 2019 for the untapped area of the Red Sea. Another virgin territory, the offshore West Mediterranean, is currently being directly negotiated with interested companies. After ExxonMobil was awarded a block in the area in early 2020, six more blocks in this zone were awarded to major international oil and gas companies. (10) On February 18, 2021, Egypt announced the start of a new round of bids for the exploration and exploitation of oil and natural gas in 24 blocks, nine of which are in the Mediterranean Sea.

There have been several large onshore and offshore natural gas discoveries in Egypt in the past five decades. Of these, the most important one was the Zohr field, which is regarded as a geological game-changer for exploration in the Mediterranean. (11) It is important to note that both ExxonMobil and Chevron entered the Egyptian upstream sector in 2019. Moreover, after acquiring Noble Energy (operator of the Tamar and Leviathan fields in Israel and the Aphrodite field in Cyprus) in 2020, Chevron has become one of the most important actors in the Eastern Mediterranean.

The GASC

The Greek Administration of Southern Cyprus (GASC) held three offshore licensing rounds for hydrocarbon exploration in 2007, 2012, and 2016 and has awarded nine blocks to foreign companies. Three offshore gas discoveries have been made to-date--Aphrodite in 2011, Calypso in 2018, and Glaucus in 2019. Of these, only the Aphrodite field discovered by Noble Energy was declared commercial in 2015. (12)

Israel

Israel has been exploring hydrocarbons for decades, albeit without much success. The first commercial gas discovery, the offshore Mari-B field, took place in 2000. A decade later, two giant offshore gas reserves were discovered -the Tamar field in 2009 and the Leviathan field in 2010. Other, smaller discoveries followed. Israel expanded its offshore exploration opportunities after the government adopted a new gas sector framework in 2015 and 2016. Since 2016, licenses for hydrocarbon exploration offshore have been granted via a competitive process. Israel held three international offshore bid rounds in 2016, 2018, and 2020 for natural gas and oil exploration, and awarded numerous blocks. (13) In February 2021, the Israeli Ministry of Energy announced plans to launch a fourth offshore bidding round for exploration licenses for 25 blocks to be grouped into six clusters.

Lebanon

Lebanon has launched two international licensing rounds for offshore oil and gas exploration. The first, in 2012, was postponed several times due to the political deadlock and lack of consensus in the country. Finally, in 2017, the licensing round was relaunched, and two blocks were awarded to a consortium of three companies: TOTAL, ENI, and Novatek. The consortium failed to find a commercial reservoir in its first exploration well in block 4, which was drilled in early 2020. The drilling activities in the other block (block 9) are expected to commence in 2021. In the second offshore licensing round, launched in 2019, five blocks were offered. However, the deadline for submitting bids has been postponed three times due to the global COVID-19 pandemic and its economic repercussions. (14) The government expects to complete the round in 2022.

Palestine

In Palestine, limited exploration activities have been undertaken. Only one small gas field, the Gaza Marine field, was discovered by British Gas (now Shell) in 1999 on the Palestinian coast. (15) The field remains undeveloped due to the continued blockade of Palestine's access to the gas field by Israel and the political divisions among the Palestinians.

Syria

Syria's offshore is truly a frontier area of exploration, as no wells have been drilled offshore Syria. The first offshore bidding round was held in 2007, but no licenses were awarded. The second Syrian international offshore licensing round, held in 2011, received no bids, as war broke out in the country soon thereafter. In 2014, the Syrian government signed a production-sharing agreement for the exploration and development of one of its blocs, but no activity has been reported yet. (16) Due to the ongoing crisis in the country, no significant development in upstream activities is likely in the near future.

Turkey

Turkey's offshore hydrocarbon exploration activities in the Mediterranean gained momentum following the announcement of its new national energy and mining policy in 2017. Unfortunately, none of the 18 wells drilled to date in Mediterranean have contained commercial quantities of hydrocarbons. It should be noted that the Turkish Republic of Northern Cyprus (TRNC) issued offshore licenses to Turkish Petroleum (TPAO) for hydrocarbon exploration in seven blocks in September 2011.

Several exploratory and appraisal drilling campaigns were expected to take place in the Eastern Mediterranean in 2020, but many of them have been deferred as companies curtailed their upstream capital expenditures due to the COVID-19 pandemic. This was especially the case for the drilling activities in the GASC and Lebanon. The pandemic has also had an impact on licensing plans in the region. Compared to other countries, however, Egypt's upstream activities and plans are the least affected.

The Eastern Mediterranean Has Become a Gas Exporting Region

Discoveries make sense if they are converted into production capacity, which necessitates selling the produced gas to domestic and/or international markets with a favorable profit margin. Selling the gas to...